Sunday, June 22, 2014

Between the pressure created by debt, and the challenge of paying for the wide range of everyday household bills and expenses, there can be little surprise as to why so many Americans are struggling financially. But perhaps what is a surprise is that $20,000 unsecured personal loans are available.

It only stands to reason that lenders would be reluctant to accept an application for such a large loan and grant approval without collateral to provide any security. While this is certainly true for traditional lenders, there are alternative loan sources that are willing to take on the added risk.

The availability of unsecured personal loans means that almost everyone has a route out of financial trouble. But getting approval is in no way assured, and like every other loan application, there is need to convince the lenders that repayments will be made without a hitch. So, why are such loans available to bad credit borrowers?

Credit Scores Are Overlooked

The fact is that bad credit scores are pretty much meaningless when it comes to the approval process. They are no more than a reflection of past financial situations and not the present situation. What this means is that lenders can overlook them, thus making a $20,000 unsecured personal loan perfectly viable if certain conditions are met.

The chief influence that these credit scores have relates to the interest rate charged on the loan. The rule is that the lower the score is, the higher the interest - and vice versa. An excellent credit score is 700 and over, while a bad credit borrower is usually anything between 600 and 699. Scores below 600 are usually insufficient to secure loan approval without collateral.

However, when the credit score is low, the higher interest rate often makes the repayments on an unsecured personal loan too large to be affordable. This is where the score can cause damage, but the final approval decision rests on employment status and the debt-to-income ratio.

Lengthening The Loan Term

One of the most effective ways to make a $20,000 unsecured personal loan affordable is to extend the term of the loan to its maximum. Basically, the more monthly repayments that are due, the smaller the share of the principal that is paid each month.

For example, a $20,000 loan over 5 years has 60 monthly repayments, at monthly repayments of around $350. But over 10 years, the principal is divided into 120 individual monthly repayments, at about $175 per month. And with the repayments so affordable, getting approval without collateral is not difficult.

With this in mind, seeking a longer term unsecured personal loan makes perfect sense. But remember that with a great number of repayments, the amount of interest paid over the lifetime of the loan is also greater.

Consider Online Lenders

As a bad credit borrower, approaching a traditional lender with an application for a $20,000 unsecured personal loan is likely to end with disappointment. Traditional lenders offer terms that are not ideal when finances are already strained. Online lenders are a much better option.

This is because online lenders are recognized experts in bad credit lending, and have loan packages designed to suit the specific restrictions that bad credit borrowers commonly have. Getting large loan approval without collateral is more likely because of their ability to accommodate tighter budgets - as long as the issues of affordability are satisfied.

But it means even large unsecured personal loans are within reach, and a route towards financial recovery does exist.